For the first six months of 2005, net income was $6.4 billion ($3.04 per share - diluted), vs. $6.7 billion ($3.14 per share - diluted) in the 2004 first half, which included $0.8 billion ($0.37 per share) of benefits for the effect of special items and the tax-law change.
Sales and other operating revenues in the second quarter 2005 were $47 billion, up $11 billion from the 2004 period. Six-month sales and other operating revenues were $88 billion, up $18 billion. The increase in both periods was mainly attributable to higher prices for crude oil, natural gas and refined products.
Earnings Summary Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Income From Continuing Operations - By Major Operating Area(1),(2) Upstream - Exploration and Production $2,772 $2,964 $5,151 $4,938 Downstream - Refining, Marketing and 976 1,044 1,385 1,684 Transportation Chemicals 84 59 221 133 All Other (148) 39 (396) (98) Total 3,684 4,106 6,361 6,657 Income From Discontinued Operations - Upstream - 19 - 30 Net Income(1),(2) $3,684 $4,125 $6,361 $6,687 (1)Includes foreign currency effects $54 $45 $33 $2 (2)Includes income from special items $ - $585 $ - $530
"Earnings were strong in the second quarter," said Chairman and CEO Dave O'Reilly, "despite some refinery downtime for maintenance and repairs. Strategically, we continued to advance our major initiatives in the period, including several projects aimed at commercializing our large international gas resource base."
O'Reilly said upstream earnings of $2.8 billion in the second quarter were higher than a year ago, absent the effect of a special-item gain in the 2004 period, as prices increased for both crude oil and natural gas. Downstream profits of approximately $1 billion, while up significantly from the 2005 first quarter, were off about 7 percent from the year-earlier period due mainly to the refinery downtime.
"On the strength of our earnings for the past 12 months, we attained a 24 percent return on capital employed for the period," O'Reilly added. "By the halfway mark of this year, we had further improved our already-strong financial position. Our debt ratio stood at 19 percent, and our cash and marketable securities balance totaled more than $13 billion, up nearly $3 billion from the beginning of the year."
O'Reilly said the company had also purchased more than $1.5 billion of its common shares in the open market during the first half of 2005, including more than $800 million in the second quarter. Combined with repurchases last year, the company has acquired $3.6 billion in shares as part of a $5 billion buyback program initiated in April 2004.
O'Reilly also remarked on achievements that highlight the company's continued focus on key project milestones and strategic initiatives, including the following recent announcements:
"As we enter the second half of the year, I am optimistic about our company's ability to improve upon its strong financial performance and to make additional progress on the major capital projects that are key to our future growth," O'Reilly said. "I also look forward with much anticipation to the merger with Unocal and being able to combine the strengths of these two fine companies. At this year's mid-point, the conditions overall are excellent for us to continue adding value for our stockholders."
Worldwide oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, declined 6 percent from the 2004 second quarter but was up slightly from the first quarter of this year. The majority of the decline from the year-ago period was associated with asset sales and cost-recovery provisions of certain production agreements.
Average U.S. prices for crude oil and natural gas liquids in the second quarter 2005 increased more than $11 to $44 per barrel. Internationally, prices were up nearly $13 per barrel to over $45. The average U.S. natural gas sales price increased 13 percent to about $6.30 per thousand cubic feet, while internationally the average natural gas price of about $3 per thousand cubic feet was 18 percent higher than a year earlier.
U.S. exploration and production income of $972 million in the second quarter increased 2 percent from the 2004 period. The benefit to earnings from higher prices for crude oil and natural gas was largely offset by the effects of lower production of liquids and natural gas and higher depreciation and depletion expense.
Net oil-equivalent production declined about 15 percent to 740,000 barrels per day in the 2005 quarter. The net liquids component of production was down 12 percent to 470,000 barrels per day. Net natural gas production averaged 1.6 billion cubic feet per day, down 19 percent from the second quarter 2004. Excluding the effect of property sales and curtailed production due to storms, net oil-equivalent production decreased about 8 percent between periods on normal field declines, partially offset by new or increased production in certain fields.
International Exploration and Production Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Income From Continuing Operations(1),(2) $1,800 $2,016 $3,412 $3,136 Income From Discontinued Operations - 12 - 17 Segment Income(1),(2) $1,800 $2,028 $3,412 $3,153 (1)Includes foreign currency effects $57 $22 $39 $2 (2)Includes income from special items $ - $585 $ - $585
International exploration and production income of $1.8 billion decreased from $2.0 billion in the second quarter 2004. The 2004 period included a special-item gain of $585 million for the sale of upstream assets in western Canada and a one-time benefit of $208 million related to a change in certain income tax laws. The profit improvement otherwise was due to higher average prices for crude oil and natural gas. Foreign currency effects increased earnings $57 million in the 2005 quarter, vs. $22 million in the year-ago period.
Net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, declined 2 percent to 1,681,000 barrels per day in the 2005 quarter. The net liquids component declined 34,000 barrels per day to 1,322,000, as increased liquids production in China, Republic of the Congo, the Karachaganak Field in Kazakhstan, and Venezuela were more than offset by the effects of lower cost-oil recovery volumes in Indonesia, property sales and a turnaround for scheduled maintenance at Tengizchevroil. Natural gas production was up slightly to 2.2 billion cubic feet per day, primarily due to higher production in Australia, the Philippines and Denmark. Excluding the effect of property sales and reduced volumes connected with cost-oil recovery, net oil-equivalent production increased 2 percent between periods.
REFINING, MARKETING AND TRANSPORTATION U.S. Refining, Marketing and Transportation Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Segment Income $398 $517 $456 $793
U.S. refining, marketing and transportation earnings of $398 million decreased $119 million from the 2004 quarter. The decline was associated mainly with the effects of downtime for maintenance and repairs at two of the company's refineries. Average refined-product margins for operations on the West Coast were also lower. Sales volumes for refined products decreased 3 percent from the 2004 second quarter to 1,510,000 barrels per day. Although sales of fuel oil and jet fuel were lower, branded gasoline sales volumes of 585,000 barrels per day increased 6 percent on the strength of the reintroduction of the Texaco brand.
International Refining, Marketing and Transportation Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Segment Income* $578 $527 $929 $891 *Includes foreign currency effects $12 $27 $24 $2
International refining, marketing and transportation segment income increased $51 million in the 2005 quarter to $578 million. The 2004 period included a one-time benefit of $47 million for a change in certain income tax laws. The improvement otherwise between periods resulted mainly from higher refined-product margins in most of the company's operating areas and an increase in the ownership percentage of the Singapore Refining Company since last year's second quarter. Partially offsetting these earnings improvements were the effects of downtime for repairs in the 2005 quarter at the company's Pembroke, U.K., refinery.
Total refined-product sales volumes of 2,327,000 barrels per day were 5 percent lower than in last year's second quarter. The sales decline was primarily the result of lower gasoline trading activity and termination of certain fuel oil contracts.
CHEMICALS Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Segment Income* $84 $59 $221 $133 *Includes foreign currency effects $(1) $(2) $(2) $(4)
Chemical operations earned $84 million, up $25 million from the 2004 quarter. Earnings for the 50 percent-owned Chevron Phillips Chemical Company LLC (CPChem) affiliate increased primarily as the result of higher product margins for commodity chemicals. Partially offsetting the improved CPChem results was a decline in the earnings of the company's Oronite subsidiary due to higher feedstock costs.
ALL OTHER Three Months Six Months Ended June 30 Ended June 30 Millions of Dollars 2005 2004 2005 2004 Net (Charges) Income* $(148) $39 $(396) $(98) *Includes foreign currency effects $(14) $(2) $(28) $2
All Other consists of the company's interest in Dynegy, coal mining operations, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.
Net charges were $148 million in the second quarter 2005, compared with net income of $39 million in the corresponding 2004 period. The 2004 quarter included a gain on an asset sale and an income tax benefit. The increase in net charges otherwise was associated with higher expenses for a number of corporate items that individually were not significant.
Capital and exploratory expenditures in the first six months of 2005 were $4.2 billion, compared with $3.8 billion in the corresponding 2004 period. Included in these expenditures were approximately $700 million and $600 million for the company's share of equity affiliate expenditures in 2005 and 2004, respectively. Upstream expenditures represented 77 percent of the companywide total in 2005. About three-fourths of this upstream amount was for projects outside the United States, reflecting the company's continued emphasis on international crude oil and natural gas production activities.
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